Monday, 22 June 2015

This article is for landlords who are renting apartments to residential tenants in Ontario. The goal of this article is to provide a guide to the steps to take to protect one's interest while at the same time recognizing the difficulties that tenants might face and the impact of those difficulties on running the business of being a landlord.

Generally speaking, first time landlords and landlords with few rental properties are the people who are most likely to lose the most when it comes to tenants not paying their rent. In the case of first time landlords the losses from tenants not paying their rent mount steeply because of a natural inclination to give the tenants a chance and a desire to help the tenants. That inclination leads to a significant delay in taking the mandatory legal steps that must be taken to get an Order for rent arrears and eviction for non-payment of rent. The inclination to be kind, understanding, and patient with a tenant in arrears of rent may result in time creeping by and before you know it the tenant is several months in arrears of rent. It is only then, that the kind, understanding and patient landlord begins to suspect that they have been taken advantage of, or worse, realizes that the tenant's personal circumstances are such that they will never be able to recover from the debt hole of rent arrears that they are in. With the dawning of this reality, the new landlord then learns that the actual legal process required under the Residential Tenancies Act will take several more months before anything concrete can be done to stem the losses and regain vacant possession of the rental unit.

The other kind of landlord who is more likely to suffer rental losses is the landlord with very few rental units. Why is this? In my experience this tends to happen because this kind of landlord is easily distracted from the business of being a landlord. With only a few rental units this kind of landlord is often employed elsewhere or runs another business elsewhere which work provides the actual income on which the landlord lives. The cash-flow of only a few rental units is nice for building equity in the properties but the fact is that after expenses the net profit from the rental income on a few rental units (say 10 or less) is not anywhere near enough to live on.

The landlord with only a few rental units often relies on the integrity of the tenants to pay the rent. When a tenant is in arrears, these landlords often don't notice right away that a cheque has bounced or that they didn't receive a cheque that month. These landlords are often distracted from the problem of non-payment by tenants who say the cheque was mailed, dropped in the drop-box or by some other plausible excuse that buys the tenant more time. These landlords tend not to get around to the paperwork because of the distractions of their other jobs and as a result their losses from non-payment of rent tend to be higher than for landlords who are focused on their business of being landlords.

The solution for both types of landlords (kind, new, & patient and the small landlord), is the same. You have to use the tools that the law provides and you must use them immediately upon being entitled to use these tools. Using the tools that the law provides does not in fact prevent a landlord from being kind, patient or understanding. It is still possible to give a tenant a chance to pay even if the full force of the law is used. It needs to be understood that using the law as it is intended to be used does not make a landlord a bad person.

I recommend to all of my landlord clients that there should not, as a matter of practice be any grace period for non-payment of rent. If rent is due on the first of the month then it is important to require consistent payment of rent on the first. Requiring delivery of rent on or before the first of the month allows for greater efficiency and tracking of how the "landlord business" is going. By getting all of the rent on or before the first a landlord can sit down on the second of every month and do the deposit, update the rent ledgers, and get a good picture of where the business is at. If a landlord allows rent to be paid in dribs and drabs over the first couple of days of every month by numerous tenants then along with the reduced cash-flow the landlord has increased administrative burdens in receiving, recording, and crediting rent payments that are made late.

The administrative efficiencies that come with rent that is paid in a timely manner are so great that a few of my larger landlord clients provide tenants with an on-time rent discount if rent is paid in full and on time on or before the first of every month for a period of one year.

THE STEPS THAT SHOULD BE TAKEN

A tenant has the right to pay rent all the way up to midnight of the day that rent is due. This is regardless of office hours or other preferences of the landlord.

On the second day of the month or the day after that rent is due if the rent term runs on anything other than the calendar month; landlords should immediately determine who has paid rent and who hasn't. For the tenants who have not paid rent the landlord should immediately issue an N4 Form (Notice of Termination for Non-Payment of Rent). That form is available here .

The N4 Form is the form that a landlord completes to advise a tenant that their rent is late and that the landlord is seeking to terminate the lease for non-payment of rent. The form requires the tenant to pay the rent by a specified date that is called the termination date. That termination date must always be a minimum of 14 days after the N4 Form is properly served on the tenant. This means the service of the Form N4 will give the tenant 2 weeks to pay the rent. If they do pay the rent within that time then the N4 form is void and the tenancy continues without any interruption.

If the tenant does not pay the rent within the 14 days provided in the N4 form then, and only then, may a landlord proceed to the next step which is filing an application to the landlord and tenant board to terminate and evict the tenant and get an Order for the rent arrears and ongoing rent that may accrue with the passage of time.

It should be apparent to the new landlord from looking at the requirements of the N4 that the law already builds in a grace period for delinquent tenants. Providing the tenant with a grace period before serving the N4 (Notice of Termination for Non-Payment of Rent), extends a two week grace/notice period to an even longer period of time. If a landlord chooses to give the tenant a few more days, a week or two, or whatever other time period, this does not shorten the legally required notice in the N4 of 14 days. Regardless of the kindness extended to the tenant, the RTA requires that the minimum notice periods be provided to the tenant in the proper Forms. In my view, an N4 that is served immediately upon the rent being late starts a clock ticking that protects a landlord's interests. While nothing technically stops a landlord from granting the tenant more time, or delaying eviction, that "kindness" in my view should not come at the expense of having the legal right to terminate and evict the tenant should the kindness extended to the tenant be abused or the rent not ultimately be forthcoming.

During the two week period after the service of the Form N4 there is nothing that the landlord can do (no legal action to regain possession of the rental unit is possible during this time). It is fine to speak with the tenant and make whatever arrangements you wish with respect to getting payment of the rent. However, I strongly urge landlords to not make deals that include waiving or delaying the legal rights you have to get an Order terminating the tenancy for non-payment of rent. While the tenant's promises to pay may be very sincere and the plans to raise the money entirely plausible, the risk that the rent arrears are not paid should not be compounded with an extended period of non-payment of rent for subsequent months. What I mean by this is that you can make a payment plan with a tenant and agree on terms that are satisfactory to you. However, any deal that you reach should include the fact that you will apply to the Landlord and Tenant Board for an order terminating the tenancy and evicting the tenant. If the tenant has paid the rent arrears (and $170 filing fee) by the time of the hearing then no harm has come. If the payment plan extends past the time of the hearing then you can make the payment plan a condition of the Eviction Order--meaning the eviction will not be enforced unless the tenant fails to meet the terms of the payment plan agreed to. The effect is that you are still being flexible, patient, and understanding with a tenant who may be facing a tough time for a myriad of reasons, but you are protecting yourself with an eviction Order in case the non-payment of the rent arrears and future rents gets out of hand.

After you have served the N4 and have waited the required 14 days, you may apply to the Ontario Landlord and Tenant Board for a Hearing. You use the Form L1 to apply to the Board. You will need a copy of the N4 that you served on the tenant along with a Certificate of Service proving that you delivered a copy of the N4 to the tenant. The L1 application when filed with the Landlord and Tenant Board will result in a Notice of Hearing being issued. That hearing will in most cases be scheduled within a few weeks of filing the application. You will receive instructions with the issued application for serving the tenant and filing a Certificate of Service with the Board.

You should take note again of how the tenant is afforded opportunities to pay the rent arrears. The N4 provided 14 days notice and now the filing of the L1 results in a few weeks of delay again before a hearing is scheduled. While waiting for the hearing date nothing can be legally done to regain possession of the rental unit without the tenant's consent. During this entire time the tenant has the right to pay off the full rent and maintain the tenancy or alternatively the tenant can use this time to find a new apartment and get ready to move. Granting the tenant indulgences and not enforcing your legal rights as a landlord when those rights accrue gives the tenant a whole lot more time to not pay future months of rent (as it becomes due), to the detriment of the landlord who thought that it was harmless to grant a few more days, weeks, month, etc..

When the Hearing date finally arrives a Landlord needs to be prepared to attend the hearing to prove the case against the tenant. It is imperative that a landlord attend the hearing with an up to date rent ledger that clearly shows the rent being charged, the rents received, and the amounts owing. On the day of the Hearing the Landlord and Tenant Board will request the Landlord to provide an update as to the status of the rent arrears on an L1/L9 update sheet. This form, available at the Landlord and Tenant Board, is designed to show the adjudicator exactly how much the tenant owes, what the legal rents are, whether any rent has been paid (full or partial payments) since the filing of the application, whether rent has increased, and whether there are any NSF charges. The Form also queries whether there are any extenuating circumstances that the Landlord and Tenant Board should be aware of.

The extenuating circumstances are essentially things that may be considered legitimate excuses or explanations for the rent arrears. Sometimes, the rent arrears arise from things beyond the tenant's control. Where there is a job loss, injury, illness, delay of payments, family emergency, theft, and any other unfortunate occurrence that the Board accepts, an adjudicator may grant the tenant more time to pay the rent arrears while still maintaining the tenancy. The authority to grant the tenant a further opportunity is found in section 83 of the RTA. This discretion section can be quite maddening to landlords who have delayed pursuing their tenants because they felt badly and wanted to give the tenants a chance. The rent arrears by the time the tardy landlord gets to the Landlord and Tenant Board can be many many months. Then, in defence of the application, the tenant can ask the Board to grant a payment plan or in some circumstances delay eviction because of the tenant's circumstances. Landlords who are relying the rent to meet mortgage obligations or other financial commitments can become quite upset at this "discretion" being exercise under section 83 in favour of tenants who they feel have abused the kindnesses already extended to them.

My point in this article is not to complain about the RTA or to suggest that the statute is in any way unfair. In fact, I find that the RTA is fairly balanced given the competing interests of landlords and tenants. The trick to maintaining the "balance" in non payment of rent cases is for landlords to make use of the rights that are granted to them under the RTA as soon as possible. By delaying the exercise of these rights it does ultimately appear that the RTA is unfair to landlords especially when the rent arrears have extended over a great many months. The landlords that I have heard complaining the loudest are generally the ones who do not know their rights under the RTA (and have never read the RTA) and they are generally the ones who just assumed because they own the property that the tenants have to do what they say and that the Landlord and Tenant Board will back them up. It is these landlords that complain the loudest when they realize that their delay in issuing the proper paperwork, added to the minimum statutory notice periods and the delay that comes with the hearing process, will result not only in present rent arrears not being paid but that future rent arrears will accrue and there will be nothing that can be done to regain vacant possession of the rental unit quickly.

In an application to the Landlord and Tenant Board, where there are no extenuating circumstances or any reason to extend time to pay, a tenant can still use procedural methods to delay the ultimate hearing of their case--which will delay the termination and eviction. After any procedural delays, and assuming that the tenant has not filed a counter application (usually for maintenance problems and rent abatements), the case will eventually be heard on its merits.

In a typical case, where there is no exercise of discretion under section 83, the Landlord and Tenant Board will issue an Order terminating the tenancy and evicting the tenant 11 days after the date that the Order is written. During this 11 day period the tenant is permitted to pay off the rent arrears to void the eviction Order and remain in the rental unit. It is only on the 12th day (as set out in the Order) that the landlord is permitted to file the Order with the Court Enforcement Office to get the Sheriff to attend at the rental unit to evict the tenant. Note that after filing the Order with the Court Enforcement Office that the Sheriff will attend at the tenant's rental unit to post a Notice to Vacate on the door. That Notice to Vacate will give the tenant warning that the Sheriff will be coming on a specified date to enforce the eviction--that date rarely less than 7 days after the service of the Notice to Vacate. In very busy jurisdictions the enforcement date can be much longer than 7 days.

Once during a tenancy, a tenant is permitted even after the expiry of the 11 day period in the Order to pay the rent in full and bring a motion to void the eviction Order. So long as the tenant is still in possession the motion may be brought. If the landlord has already paid the Sheriff fees the tenant does not have to pay the fees, only the rent, to bring the motion to void the eviction Order. Dealing with payment of the Sheriff fees is a matter for the motion to the Board where the landlord can argue that the Sheriff's fees also need to be paid to void the eviction Order.

SUMMARY

The point of this article is to suggest a balanced approach to dealing with tenants who are having rent payment problems. The reasons for late rent or non payment of rent are beyond enumeration as there are simply too many of them. Some of the reasons are legitimate, some are foolish, some arise from hardship and others from human frailty. My suggestion to landlords is that being a good businessperson landlord does not require you to turn a blind eye to these problems. Heartlessness is not a prerequisite to being landlord. However, it needs to be recognized that the processes under the RTA already build in an awful lot of chances, delays, and opportunities to ask for the exercise of discretion. It is prudent for all landlords to exercise all of their RTA rights and get the eviction order as quickly as possible for non-payment of rent. As "quickly as possible" will be a minimum of 5 weeks and likely longer. If at the end of that process a landlord is convinced that the rent arrears are forthcoming then you can wait to file the eviction order with the Sheriff for a few days.

In all my years of doing this I have never had a Landlord client who was sorry that they had an eviction Order in hand and that they enforced their rights as soon as they became available. On the other hand, I have had numerous landlord clients who were very sorry that they let their rent collection processes get out of hand and unstructured. Getting tenants to pay the rent on time, doing the deposits, rent ledger paperwork and enforcement paperwork on a regular schedule makes the business of being a landlord much less stressful and in fact profitable.

Ottawa lawyer and partner at Quinn Thiele Mineault Grodzki LLP. Graduate of Queen's University in Kingston, Ontario. Called to the bar in Ontario in 1997. Undergraduate degree at Colby College, Waterville Maine, U.S.A.

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About Michael Thiele

Ottawa lawyer and partner at Quinn Thiele Mineault Grodzki LLP. Graduate of Queen's University in Kingston, Ontario. Called to the bar in Ontario in 1997. Undergraduate degree at Colby College, Waterville Maine, U.S.A.